Why Microsoft can't innovate

When it comes to innovation, Microsoft is well behind Apple and Google. Why might that be? Rob Glaser, former Microsoft VP and RealNetworks founder, offers a unique perspective well worth examining.

Glaser published a piece "Why has Microsoft seemingly stopped innovating?" on the Web site Quora. Until recently, his article was behind a firewall.

Glaser worked at Microsoft for ten years, eventually becoming Vice President of Multimedia and Consumer Systems. He is also the founder of Microsoft competitor RealNetworks. So he's no idle observer; he speaks from long experience as both an insider and one who has had battles against Microsoft.

In his piece, Glaser first says Microsoft has been capable of some innovation in recent years, but then bluntly adds that Microsoft can't innovate as effectively as can Google or Apple:

There's no question in my mind that Microsoft's per capita ability to get effective innovations into the market in 2010 is much more like IBM's or HP's than like Google's or Apple's.

At the top of the reasons that Microsoft can't innovate, he believes, is that the company was built on PC-centric software, and remains focused on PC-centric software, even though we're in a post-PC world. The PC-centric business model is very different from post-PC business models, he says, and Microsoft has yet to come to terms with the new ways of doing business. Here's what he has to say:

The biggest sources of value-creating innovation in the past 5 years have been:

(a) Search delivered to consumers/end users on the Web for free, supported by extremely valuable targeted ads (Google)

(b) Integrated Hardware/Software/Service device plays monetized both by selling the device and then selling services on top of the device (Apple, RIM)

(c) Social Network Platforms that are free to consumers, based on user-generated information put into highly integrated and extensible structured frameworks, monetized a few different ways (Facebook)

Microsoft has fallen short in each area. Google far exceeds it in search; Apple and RIM beat it on devices; and Facebook and others beat it in social networking.

Glaser also says Microsoft can't innovate because it's built on a "monopoly economics and culture." He explains:

Microsoft's 2 core businesses -- Windows and Office -- are natural winner-take-all monopolies. What it takes to maintain these businesses in a financially successful way is very different than what it takes to create successful new businesses.

This further reinforces the dominant culture, and requires extraordinary effort and focus to overcome, especially how fundamentally different the biggest adjacent business opportunities are from Microsoft's core financial engines. Moreover, because the two monopolies are so profitable, any new business will suffer by comparison to these monopolies for many years, especially if there is a viable incumbent already in place.

Finally, he cites one more reason --- leadership. Here he finds that Steve Ballmer falls far short of Bill Gates in many ways, and he worked with both of them. First off, he says that Gates was open to feedback, while Ballmer is not. He says:

Microsoft with Bill at the helm was a company that always tolerated, and often fostered, many different ideas and points of view, including views that the CEO was known to disagree with.

Under Ballmer, he says:

Getting Steve to change his mind once his mind was made up was always extraordinarily difficult and often seemed literally impossible. Moroever, even trying was often very unpleasant, even by Microsoft standards. As a result, I saw many people, including lots of good people, just "go along" with Steve rather than fighting for what they believed in.

He also says that Gates was interested in consumer businesses as well as business-to-business, but that Ballmer seems interested only in business-to-business.

I think that Glaser is right on target, in particular when it comes to Microsoft being a PC-centric company in a world moving away from PCs. All this doesn't mean that Microsoft won't continue to be tremendously profitable, of course. There are still fat profits to be made from Windows, Office, servers, and other similar products, and will be for many years to come. But unless Microsoft figures out how to innovate on non-PC-centric platforms, the company's big growth days are behind it.

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